I love buying beaten-down stocks with big upside potential,
particularly when short interest is high. As the number of outstanding
shares held short climbs, signaling increasingly bearish sentiment, the
potential for a short squeeze increases.
A short squeeze is a rapid move higher in a heavily shorted stock. As
price rises, more and more short sellers are forced to cover their
positions by buying shares on the market, thus pushing the stock even
higher. It's a vicious cycle, and getting caught on the wrong side of a
short squeeze can result in substantial losses.
However, screening for potential short squeeze candidates can also
lead to high-probability, short-term bullish trades. And mobile and
social game maker Zynga (NASDAQ: ZNGA) currently looks ripe for a short squeeze. (more)
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